[jeff]

Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.’s outstanding common stock. At the date of the transaction, Key’s nonvoting preferred stock had a market value of $100 per share, and Lev’s tangible net assets had a book value of $60,000. In addition, Key issued 100 shares of its nonvoting preferred stock to an individual as a finder’s fee for arranging the transaction. As a result of this capital transaction, Key’s total net assets would increase by

a.$0

b.$100,000

c.$60,000

d.$110,000

Source: Wiley Test Bank

Link: https://www.another71.com/products-page/wiley-software/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Noct]

c.

FAR - 79 - 07/2012
AUD - 65, 78 - 11/2012
BEC - 76 - 11/2012
REG - 78 - 01/2013
ETH - 98 - 01/2013

Material: Wiley books

[jeff]

I think people are scared to be wrong and look bad 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

I'd go with D, 110,000. I'm also going to review this chapter now!

[taxdiva]

This is a tricky one. Since this is a business combination you'd adjust the net assets to fair value. So we can know it'll either be 100,000 or 110,000. But do we include the finder's fee? My brain is telling me yes.

So, I'll go with D, $110,000.

What's the answer?

REG(10/23/12)- Passed. Life happended and lost credit - 18 month expiration)(Retake soon)
FAR - Passed. Used Becker.
AUD - Passed. Used CPAExcel (now Wiley)
BEC- Plan to take October-ish.

Just give me a 75!

[Anonymous]

I will go with D.

[jeff]

You were on the right track taxdiva…that finder's fee was intended to throw you off.

b. This answer is correct. A business acquisition is accounted for using fair values; the net assets acquired are recorded at their fair value or the fair value of the stock issued, whichever is more objectively determinable. In this case, the fair value of the stock issued is a better measure of the value of the purchase (1,000 shares x $100 per share = $100,000). The total cost of acquiring the net assets is the fair value of the preferred stock ($100,000). The finder’s fee is treated as an expense of the period.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[taxdiva]

@Jeff, thanks for that review question!

I sit for FAR on Friday. I know the content, I just hope I don't get tripped up on questions like this.

REG(10/23/12)- Passed. Life happended and lost credit - 18 month expiration)(Retake soon)
FAR - Passed. Used Becker.
AUD - Passed. Used CPAExcel (now Wiley)
BEC- Plan to take October-ish.

Just give me a 75!

[10keyLeah]

Great question… I've bee studying for FAR as well, and I initially got it right but then second guessed myself about the finders fee.

Ninja Combo, Yaeger, Wiley -- Licensed CPA, May 2015

[Author]

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